Long-term inflation expectation is 2.0 percent, which is 0.5 percent less than 2012.
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Stock prices have an inflation expectation built in and also grow above inflation as real earnings growth occurs and dividends are paid by the companies.
All investments have an inflation expectation built into the price.
That said, the Bank of England's current expectation that inflation will fall and stay low may turn out to be right.
By fostering the expectation of future inflation, that might get consumers to start spending again.
Mr. Hong: Because we expect a slowdown in the global economy, our expectation is that inflation in Asia is likely to recede and become less of a concern over the course of the year.
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As Michael Saunders, at Citi, points out, the "market forecast" for interest rates, which is built into the Bank's inflation charts, now includes an expectation that bank rate will be cut one more time, to 0.25%, in 2013.
In December, the expectation for year-ahead inflation had retreated to 3.1%, the smallest expected increase in a year.
Investors have been happy to buy its inflation-linked bonds, on the expectation that consumer prices will rise sharply.
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If the Fed can generate the expectation that you are going to have inflation in the future, that may alter your behavioral patterns.
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With inflation and increases in the standard of living comes the expectation that Chinese workers will someday become middle class and be able to buy the products they make.
Wage stickiness could stop inflation falling much below 2%, and could justify the expectation of many economists that short-term interest rates will fall no lower than 2.75%.
If month-over-month core inflation rates can alternate between 0.2% and 0.3% for the next several months (less than our expectation), it will look like a soft landing on inflation and will add further to confidence in the Fed.
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